As lobbyists for businesses and labor groups negotiate with Gov. Gavin Newsom’s administration on how to amend a unique California labor law that allows workers to sue their bosses, the two sides seem to agree on at least one puzzling reality.

The law, known as the Private Attorneys General Act, generates millions each year for a state fund reserved for enforcing state labor laws, including those against wage theft. But despite rising worker complaints of labor violations and severe understaffing hampering the state Labor Commissioner’s Office’s response, California leaves much of the money untouched.

The money comes from the state’s cut of the settlements and fines that businesses pay in response to these lawsuits. For years, the fund has grown faster than lawmakers and Newsom have directed it to be spent, according to state budget documents.  In 2022-23 they left $197 million in the fund unspent; the 2023-24 budget leaves $170 million.

The state draws from the fund each year for portions of the Labor Commissioner’s budget, as well as other agencies. And the fund has paid for some worker outreach and enforcement. Those programs include $8.6 million in recent grants to 17 local prosecutors to pursue criminal charges in wage theft cases, and a pandemic-era partnership with community groups to inform workers in 42 different languages about workplace rights.

But the fund’s single biggest use in the past five years has been to shore up the state budget. In 2020, the state borrowed $107 million from the labor fund for other uses. In April, an early budget deal between Newsom and legislative leaders allowed the state to borrow another $125 million as they sought to reduce a record shortfall.

Neither of these loans need to be repaid until at least 2027The administration has proposed to leave $119 million in the fund unused in the 2024-25 budget it’s negotiating with lawmakers this month. They’re seeking to cover the remaining $28 billion shortfall.

The fund’s use has frustrated businesses and labor groups alike, who say the state should spend much more of the money to help the Labor Commissioner’s Office hire or retain more staff needed to process a record number of workers’ wage theft claims.

In response to questions from CalMatters, Department of Industrial Relations spokesperson Erika Monterroza wrote in an email that the loans are not unusual during budget deficits and only come from money that’s not being used. She said $7.6 million from the fund is already allocated this year to processing wage claims.

But the department has struggled to fill those new positions. A state audit released in May found the staff shortages are caused in part by a slow hiring process and salaries that are lower than some comparable state and local government jobs.

Monterroza said it’s out of her department’s hands whether the money could be used to increase salaries or speed up hiring, saying that must be bargained with state employee unions. Newsom’s office declined to comment, referring questions to the department.

The fund is also part of the negotiations between business and labor on potential changes to the Private Attorneys General Act to take a business-backed measure to repeal the law off the November ballot. Recent polling suggests voters support a legislative fix over a ballot measure. The sides face a June 27 deadline for the Legislature to approve changes.

If a deal is reached to avert the costly ballot measure, it is likely to address how to spend the enforcement fund.

“The Labor Commissioner’s Office has hundreds of millions currently available,” said Kathy Fairbanks, a spokesperson for the coalition of employers sponsoring the ballot measure. “We strongly support using these funds to quickly hire and train staff to help resolve employee claims.”

Between 30,000 and 40,000 workers a year file wage theft claims with the office. The state audit found chronic understaffing has led to a backlog of 47,000 cases, and the claims regularly take six times longer than the time state law allows to resolve.

Lorena Gonzalez, leader of the California Labor Federation and a former state Assemblymember, said labor groups have advocated in past budgets to allow Labor Commissioner Lilia García-Brower to use the money to address the backlogs.

“Obviously we have a crisis and we have been asking and pushing the Legislature and the governor to beef up spending, to hire up,” Gonzalez told CalMatters. “We were having a hard time getting attention. It’s one of many examples that it’s not a priority to process wage theft claims.”

The Assembly’s current and former labor committee chairpersons, San Jose Democrat Ash Kalra and Hayward Democrat Liz Ortega, both declined to comment through spokespersons. Sen. Lola Smallwood-Cuevas, a Los Angeles Democrat who leads the Senate labor committee, could not be reached for comment last week.

California Chamber of Commerce CEO Jennifer Barrera also said she supported using available money to increase staff.

Still, an agreement for the state to appropriate the funds depends on broader negotiations about the scope of the PAGA law.

The two-decade-old state law allows the Labor Commissioner’s office to outsource the role of suing employers over alleged labor violations to private attorneys, with a worker standing in as plaintiff on behalf of the state and their coworkers. Most suits are brought over wage theft claims, according to a UCLA Labor Center report.

Business groups have pushed to repeal it for years, arguing it primarily enriches lawyers while subjecting businesses to frivolous cases over technical violations. Their ballot measure would direct cases back to the Labor Commissioner’s Office, where Fairbanks said workers stand to keep more money if they win individual wage theft claims.

Labor advocates say that would only worsen the backlogs at the Labor Commissioner’s Office, and take away an option for workers to bring workplace-wide suits against problem employers.

Gonzalez said even if the enforcement funds are spent on beefing up Labor Commissioner staff, the law should still stand. The May state audit concluded the office would need nearly 900 employees to efficiently process all wage claims. That’s almost triple the positions currently approved for the office — and a third of those are vacant.

“The Labor Commissioner itself is not equipped to handle all the cases we’re seeing in California today,” Gonzalez said. “We’re not fine with taking away the right of employees to sue.”